Field of the Invention
The present invention relates to systems and methods of making electronic payments. In particular, the present invention relates to systems and methods for making payments to and from banking institutions.
Description of the Related Art
With the emergence and adoption of the Internet and related technologies, businesses are moving toward electronic integration of supply and financial chains. Complete financial integration requires the ability to issue information-rich, secure, private and guaranteed final payments.
Consumer-to-business e-payment has grown steadily over the past years, but business-to-business (B2B) e-payment growth has been much slower. Among the reasons for this lack of growth in B2B e-payments are the fear that e-payments would lack remittance information and other vital data, and the reluctance to give out account numbers.
The current environment for payments involving businesses and banks is primarily a paper one. The efficiency of paper processing has created a weak electronic bill payment infrastructure. Banks are at the center of the bill payment process. They hold customer accounts from which payments are authorized and are positioned to deliver the remittance information to the biller. Banks are also positioned to deliver invoice information to the biller's customers who are also the banks' customers.
In conventional non-electronic bill payment systems, where an ongoing relationship exists, a party initiating payment (hereinafter “payor”) pays a debt to a biller by mailing a check in response to receipt of the biller's invoice. The term “biller” is used to refer to the “payee” or entity to be paid. Attached to most biller's invoices is a payment coupon to be returned with the check. The coupon contains at least the consumer-biller account number, as well as other information that will assist the biller, or the biller's bank, in properly crediting the consumer (i.e., the party initiating payment) with payment.
The need to improve payment systems was recognized in the late 1960s. Special committees on paperless entries were formed and alternatives to paper checks were developed. From this early work, the first automated clearing house (ACH) for the exchange of consumer-oriented paperless entries was established. The early ACH associations worked with their local Federal Reserve Bank to provide the facilities, equipment, and staff to operate an automated clearing house. Ultimately this lead to the development of the Electronic Payment Network (EPN), which is a private sector automated clearing house operator.
The ACH network is a low-cost electronic payment mechanism that can be used to pay both individual consumers and companies, regardless of size. In order to use the ACH network, bank routing information and payee (demand deposit account (DDA) identifier) account number must be supplied. This information must either be supplied by the initiator of the payment, or must be retained by the banking system of the payor. This presents a major problem that inhibits widespread use of the ACH network because bank routing and account information of the payee is rarely conveyed to payors for use in initiating payment instructions.
One type of system used in processing international and domestic payments electronically is the Clearing House Interbank Payments System (CHIPS), which was established in 1970. CHIPS is the foremost means for transferring U.S. dollars among world banks. In the CHIPS, a universal identifier (UID) number is utilized that uniquely identifies individual customer accounts. The CHIPS UID number is a six-digit number that is used to identify named accounts at depository institutions on the CHIPS.
Another system used for processing electronic payment is the Electronic Payment Network.
Because of the problems of security, authorization, authenticity, the fear that e-payments would lack remittance information and other vital data, and the reluctance of businesses to give out account numbers, there exists a need for a system and method that would enable the initiation and receipt of electronic payments with full remittance information that leverages the best features of existing electronic payment systems, such as ACH EPN and CHIPS, as a backbone to the system and method.
The need also exists for maintaining the confidentiality of account information and provide ease of maintenance when an account holder transfers from one depository institution to another.
Future enhancements to electronic bill payment will be integrated with existing systems, including the present invention, to form a complete supply and financial chain integration, as depicted in FIG. 1.
As shown in FIG. 1, the iClearing & Settlement (iC&S) allows for modular implementation wherein existing infastructures/processes, such as CHIPS and EPN, provide the basis for an electronic payment system. Envisioned is a new, future payment channel, XML of Rich Payment information that allows the Buyer's Bank and the Seller's Bank to communicate directly with the iC&S system for electronic payments. The Financial Services Solution provides adjudicated invoices to the Buyer's Bank and Rich Information (XML) to the Seller's Bank of buy and sell transactions between a Buyer and Seller.